- While they present risks and some are faltering, public-private partnerships (P3s) for student housing may be a good option for institutions, particularly if they don't add amenities that significantly raise costs for students, according to a new analyst report from S&P Global.
- Similarly, Moody's Investors Service reports in a sector profile that demand for student housing continues to be strong, with weakness in markets where enrollment is declining or the area is oversupplied.
- However, S&P analysts said declining enrollment is one factor that has reduced the share of non-investment grade student housing P3s. And students' price sensitivity has hampered some school's ability to fill higher-priced projects.
The S&P analysts paint a picture of the circumstances around these P3 arrangements similar to that of tuition discounts, which now average above 50% at private colleges. Just as colleges feel pressured to provide lower-priced tuition, so too do they to offer "enhanced facilities and amenities," in the hopes of boosting enrollment. The analysts warn to mind excesses in light of students' growing sensitivity to price.
"Although new student housing projects offer students a more modern way of living, the rising cost of education coupled with the high price of these newer housing options is not feasible for some families," they write, adding that "there is an increasing gap between housing expectation and willingness to pay, which can lead to lower occupancy and, if not remedied, eventual failure of the project."
P3s bring several advantages to student housing projects, the S&P analysts note. Among them, the ability to add housing quickly, share risk among multiple parties, acquire development expertise and create a revenue-generating asset for the university.
Risks to the success of a P3 include students opting instead for lower-cost housing near campus, potential oversupply as many players look to address demand in this space, the university's reduced control over the project and its operations, projected enrollment declines and the inherent challenges in construction, such as weather-related delays or other events that can slow down the timeline.
Despite those risks, colleges' investment in their existing facilities is at its highest point in more than a decade. A report late last year on spending by 360 campuses said institutions have been in an "arms race" to build new facilities to draw students in the years since the recession. Those buildings will require continued upkeep, the report notes, even with enrollment declines and continued budget strain ahead.
Other kinds of P3s are subjected to similar risks and can bring like advantages. At a conference last week on the topic at George Mason University, higher ed leaders and other industry experts noted that P3s have grown beyond campus infrastructure and services like food and laundry to include academic operations, recruitment and online programs.
They advised colleges to be aware of the risks, including their own ability to negotiate and manage such relationships. Being clear on the need for and role of a third party is also important, as is making sure the P3 doesn't compete with or duplicate existing services or facilities. In some cases, P3s to assist with recruitment, particularly abroad, and managing back office operations can even help institutions work more efficiently, they said.